This session offers an overview of the demand- driven ... AC Slide Decks Wednesday/ASUG82734 - SAP...

1INTERNAL© 2019 SAP SE or an SAP affiliate company. All rights reserved. ǀJay Foster, Director, Solution Management, Integrated Business Planning

ASUG 82734 SAP Solution Update, Strategy, and Road Map for Demand-Driven Material Requirements Planning

Source: copyright Demand Driven Institute – used with permission

This session offers an overview of the demand-

driven material requirements planning (DDMRP)

methodology, as promoted by the Demand

Driven Institute. It provides updates on SAP's

strategy and road map for DDMRP within its

planning solutions, including updates from

ongoing customer implementations.

2INTERNAL© 2019 SAP SE or an SAP affiliate company. All rights reserved. ǀ

1975 1994 2011 2016


What’s Wrong with MRP?


Chaos Theory (butterfly effect)


Chaos theory billiards break


The Bullwhip Effect

Traditional planning facilitates the amplification of variability in the supply chain

FG DC2FG DC1PackMfgMfgMfgRM

RM RM

RM

ForecastSuppl.

Suppl.

Suppl.

Suppl.

Cust.

Reality!

Forecasts are wrong, demand

is volatile, and lead times vary


The world has changed since MRP was introduced in the 1950s…

High supply chain complexity Short product lifecycles Short customer tolerance times High product proliferation

High product customization Many long lead time parts Many more…

Inventory & Service Challenges

Demand Uncertainty / Slow & Disruptive Response

Source: CAMELOT

8PUBLIC© 2019 SAP SE or an SAP affiliate company. All rights reserved. ǀ

What I Have

• I have too much stock of the products I don’t need.

• I have too little stock of the products I need.

• I have high expedite or over-time expenses

• Overall I have too much stock. Nevertheless, I cannot fulfill my customer orders (in time and quantity)

What I want

• Best possible customer service levels …

• … at lowest possible (total supply chain) costs

Classic (forecast-driven) planning

Traditional planning

resulting in a bi-

modal distributionDemand

Driven

WarningWarningOptimally

Stocked SKUs

Too much cash, capacity andspace tied up in inventory

Stock-outs, backorders,missed sales

Understocked SKUs Overstocked SKUs



A move towards Demand-Driven Planning can dampen variability and it’s

amplification (bull-whip) in today’s volatile world

Traditional planning facilitates the amplification of variability in the supply chain

DDMRP uses strategically positioned stock buffers and pull replenishment to achieve stable material flow


RM RM

RM

ForecastSuppl.

Suppl.

Suppl.

Suppl.

Cust.

Forecast error induced variability


RM RM

RM

Suppl.

Suppl.

Suppl.

Suppl.

Cust.Sales

orders

Demand variability

Planned but independent stock buffers



Five components of Demand Driven MRP form the basis of a demand driven

operating model

Strategic DecouplingBuffer Profiles and

LevelsDemand Driven

Planning

Position

1Protect

2 3Pull

4 5

Dynamic AdjustmentsVisible and

Collaborative Execution

Modeling/Re-modeling the Environment Plan Execute



As a first step, decoupling points within the product

structure and supply chain have to be placed strategically

Factors influencing location of decoupling points

Positioning

Strategy

Market Potential Lead Time

Sales Order Visibility Horizon

Critical Operation Protection

Customer Tolerance Time

Internal & External Variability

Inventory Leverage and Visibility

► It has to be decided where inventory buffers should be positioned

► This question must be answered before sizing the inventory

► Related to Bills of Materials as well as facilities/locations


Replenishment buffers are calculated based on individual

part properties and buffer profiles, resulting in buffer levels

for each part/location decoupling point

Individual Part

Properties

Lead Time

Minimum Order

Quantity (MOQ)

Location (dist.

parts only)

Average Daily

Usage (ADU)

Group Settings

(Buffer Profiles)

Item Type

Lead Time

Category

Variability

Category

Zone and Buffer Levels

for Each Part

Green Zone

Yellow Zone

Red Zone

The heart of the order generation aspect of

the buffer, determining the frequency of

order generation and the minimum size of

each order

The heart of the demand coverage in the

buffer

The safety embedded in the buffer position

X =



Dynamic adjustments

ADU-based recalculation of the buffer Manual adjustment of the buffer



Supply for a part is determined by its Net Flow Position

relative to its buffer and zone levels

► Depending on the buffer level, different actions are possible

► Green: No action

► Yellow: Place new order

► Red: Expedite open supply and/or place new order

► Recommended Order quantity is the quantity to bring the available stock position

to the top of green


DDMRP Planning

Part On

Hand

Open

Supply

Demand Net Flow

Position

Recommend

Supply Qty

Action

707 650

(39%)

1100 350 1400

(84%)

0 No

Action

501D 700

(26%)

800 200 1300

(49%)

1358 Place

New

Order

1400

(84%)

1300

(49%)

1000

1120

538

351

780

527

Part 707 Part 501D

Net Flow Position

Actual on-hand

Net Flow position =

On-hand + On-order -

“Qualified sales order demand”


Slide 15

Supply against a part is generated by its net flow position

relative to its buffer- and zone levels

The two orders that

likely would have been

deferred have highest

priority!

Order # OH Buffer Status Due Date Customer

PO 275-44 3% 05/16 Super Tech

PO 281-21 17% 05/14 Super Tech

PO 276-54 27% 05/12 Super Tech

PO 280-89 47% 05/12 Super Tech

PO 279-84 54% 05/12 Super Tech

Orders prioritized by buffer status

Benefits

• Generate clear visibility for relative priorities to determine execution priority

• Avoid manual workaround or disconnected subsystems and massive daily efforts of analysis and adjustments

for actual priority determination

• Provide sequence for orders in manufacturing

• Make full use of strategically positioned decoupling points / stock buffers



The Demand Driven Institute states key benefits and substantial

improvement potentials by the use of DDMRP

Improved customer service:

Users consistently achieve a high on time fill rate performance✓

Right-sized inventory:

Inventory reductions are achieved while improving customer service✓

Lowest total supply chain cost:

Costs related to expedite activity and false signals are largely eliminated✓

Easy and intuitive:

Planners see priorities instead of constantly fighting the conflicting messages of MRP✓

Lead time compression:

Lead time reductions have been achieved in several industry segments✓

Source: Demand Driven Institute


SAP considers DDMRP as a strategic topic in SCM that generates a unique

value proposition for it’s customers

SAP is embracing the Demand-Driven Adaptive Enterprise Model

SAP along with CAMELOT ITLab (Strategic Development Partner) is co-developing DDMRP in SAP IBP

The new module will extend the capabilities of SAP IBP and allow companies to apply the new paradigm and a state-of-the-art Demand-Driven approach to their supply chains

Available today! Planned with 1905 release


Solution options for customers considering deploying DDMRP in SAP

technology

+

E2E coverage of DDMRP in S/4 HANA today E2E coverage of DDMRP in SAP IBP with ECC integration - 1905 release

Will be covered by a new SAP IBP module –Existing DDMRP related functionalities will move to the new module

Current approach is time-series based and order-based is planned in future roadmap

E2E coverage of DDMRP through S/4 HANA and SAP IBP with 1908 release

Steps 1-3 covered in SAP IBP

Steps 4-5 covered in S/4HANA

Most suitable for customers having:

S/4HANA implemented or planned in short-term

one S/4HANA box

Not a SAP IBP customer and is not considering investments in IBP

Network and production focus


ECC landscape

Not a S/4HANA customer today nor planned in short-term

SAP IBP customer or is planning SAP IBP deployment

Networked companies with focus on finished goods planning


multi S/4 HANA landscape

Network and production focus

planned planned


SAP Demand-Driven ReplenishmentThe End-to-End Process Flow in S/4HANA

1

2

3

4

5

Replenishment

PlanningBuffer Level

Management(Operational)

Buffer Positioning(Strategic)

Replenishment

Execution

Lead Time

Average Daily Usage

Classification

Analytics

Buffer Adjustments(Operational)

Prioritization, Alerting, Monitoring


Step 1 – Buffer PositioningS/4HANA Analytics for Demand Driven Replenishment

•

•

Classify Materials by Value, BOM Usage, and Variability (not shown)


Set the Decoupling Points

Assign Buffers to Material/Locations (MRP Type = D1) based on Classification

Set horizon for calculating ADU

Derive Decoupled Lead Times based on where buffers are positioned


Step 2 - Buffer SizingReview and Adopt Buffer Level Proposals in a Worklist

Buffer ID Proposed Change Drivers for Change

Take action

here …

… or navigate

into details and

decide there


Step 3 – Dynamic Buffer AdjustmentsDetails on Time-Dependency of Average Daily Usage

Make time-dependent manual adjustments to buffer levels


Buffer SizingReview the resulting Time-Dependent Buffer Levels

Possibility to maintain Zone Adjustment Factors

(in “Edit” mode)

More Views availableBuffer Level Details

and the main input Parameters

Decision

whether

to adopt


Step 4 – Replenishment PlanningMonitor the Planning Priority and Net Flow Position, Option to Create Supply

Buffers to be replenished,

sorted by the Planning Priority, i.e. Net Flow Position / Max Stock

3

… or navigate into object page for

detailed planning by clicking on a line

Quick action to

create supply here …


Step 5 - Demand-Driven ExecutionReplenishment Orders are prioritized based on the On-Hand Buffer Status of the downstream buffer

Buffers with critical fill level, i.e. physical stock below a certain threshold,

sorted by On-Hand Buffer Status = Physical Stock / Safety Stock

7

Quick action to expedite

existing supply (orders) here …

… or navigate into the object details

for a comprehensive picture by clicking on a line


Step 5 – Buffer Monitoring


Step 1 – Strategic Inventory Positioning - IBP

Decoupling Point


Step 1 – Strategic Inventory Positioning - IBP

Proposed Decoupling Points; Simulate Manual Changes


Step 2 – Buffer Profiles and Levels - IBP

System Calculated Buffer size


Step 3 – Dynamic Adjustments - IBP

User time-dependent adjustments


Step 4 – Demand Driven Planning - IBP

Based on Net Flow Position, Propose Replenishments


Step 5 – Visible and Collaborative Execution



Execution Monitoring / Alerting: buffer levels going low



Historical Analytics: planning view - net flow position tracking in the green/yellow



Historical Analytics: execution view - on hand inventories drifting in the red


On the Topic

▪ Website: http://www.demanddriveninstitute.com/

▪ Book: https://www.amazon.com/Demand-Driven-Material-Requirements-Planning/dp/0831135980

▪ “Precisely Wrong” video: https://vimeo.com/219437991

▪ Introduction to DDMRP: https://vimeo.com/208396607

On the SAP Solution

▪ SAP Help for S/4HANA Demand-Driven Replenishment

▪ SAP Best Practices Explorer, “Buffer Level Management (1Y2)”

▪ Roadmap, navigate: “Products and Solutions” → ERP and Digital Core → SAP S/4HANA (Cloud)

Helpful Links

http://www.demanddriveninstitute.com/

https://www.amazon.com/Demand-Driven-Material-Requirements-Planning/dp/0831135980

https://vimeo.com/219437991

https://vimeo.com/208396607

https://help.sap.com/viewer/9d794cbd48c648bc8a176e422772de7e/1708%20500/en-US/4694a223d18b4f648ea0b2872cf1d2c5.html

https://rapid.sap.com/bp/#/scopeitems/1Y2

https://www.sap.com/products/roadmaps.products-solutions.html

39PUBLIC© 2019 SAP SE or an SAP affiliate company. All rights reserved. ǀ

Contact information:

Jay Foster, Director, Solution Management

Integrated Business planning

[email protected]

801-209-4785

Thank You!

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